2 computer and a wireless router

Without the proxy but the rest of your configuration the same can your desktop surf the net(since your laptop can not). If yes, from a browser on your laptop put in the ipaddress of yahoo (216.109.112.135). Does the site come up. If yes there is a issue with your DSN settings on the laptop if no, try to run a trace route to a website with your pc(like yahoo, they do not block pings and traces). Then do the same trace route with the laptop. See where the fail point is. I'm assuming that your static on your ips and not dhcp. If your are running dhcp then look at you dhcp server(again I would bet DNS). Hope this gets you going down the right road.

Rob no place like 127.0.0.1

I would change the configuration slightly, modem to router then to computers. This will give you easier network access to each computer, they have a common point of contact, and a router has a built in firewall. Not a very good firewall but a firewall none the less. When this is wired, turn EVERYTHING OFF, modem, router, all computers. Then one by one turn everything back on in this SPECIFIC order, modem wait about a minute AFTER all lights are on, router, wait another minute, computers ONE AT A TIME. Change each computer to obtain and IP address and DNS automatically BEFORE turning them off. Changing them later would require a reboot anyway. This shoud provide both computers internet access without the need for any proxy stuff.

As for local inta-net you need to be sure BOTH computers are in the SAME workgroup, my computer, right click for properties, computer name, change(for XP). The upper/lower case is not important just that the name be exactly the same on BOTH computers. You need to then go to each computer and double click my computer and do a right click on the C drive, then click sharing and go thru the process. YES you want to share the files and printers on each machine. Then you should be able to see each machine on your local lan. As for getting into each one from the other one you need to check and see if it works like it is, if not come back and I will lay out those steps too.

Why don't you have the wireless router directly connected to the adsl modem? That's the way all your docs show it, and everthing works fine that way.. I don't understand why people do it their own way, and then wonder why it doesn't work? For pictures and text see

see the first thing listed... "Connect to external ADSL / cable modem via one 10/100Base-T auto-crossover (MDI/MDI-X) Ethernet port"

Because he has a USB Modem and his router does not have a USB connection..